Substantive Due Process & Punitive Damages
BMW v. Gore’s three guideposts for determining whether
punitive damages are excessive under the 14th amendment:
Reprehensibility of D
Ratio of punitives to potential/actual harm caused by D
Other civil/criminal penalties for D’s conduct
State Farm – refining BMW guideposts
State Farm majority held that the 1st Gore guidepost (D ’ s
reprehensibility) was the most important indicium of whether
punitive damages are reasonable.
Indicia of reprehensibility: physical vs. econ harm; D indifferent to
health/safety of others; are D’s actions repeated; do D’s actions hurt
financially vulnerable; is there intentional malice, trickery or deceit
Opinion on R was that SF ’ s actions fit many of these criteria
although there were credible arguments against viewing it has ultra-
SCT also finds that State Farm’s behavior doesn’t justify the
Unreasonable or jury to consider out-of-state conduct or conduct
that was dissimilar to the conduct at issue at trial (although SCT
notes not all conduct has to be identical to be part of a pattern of
State Farm - Gore Guideposts 2 & 3
Regarding the 2nd BMW guidepost – does the SCT impose a “bright
line” rule on the ratio between punitive and compensatory damages?
When is this Court likely to see deviation from single digit multipliers as
Is D’s wealth a legitimate consideration?
What is the relevance of the 3rd guidepost – other fines/penalties?
Philip Morris & Co. v. Williams (2007)
P’s husband died of lung cancer after smoking. P sued D for fraud claiming
that D had known for 40 years that cigarettes caused cancer but concealed
information from the public and/or lied about it (decedent relied on those lies
to continue smoking). Jury awarded $525,000 in compensatories (after
remittance) and $79.5 million in punitives.
Oregon SCT upheld award after applying Gore’s 3 guideposts. D challenged
the trial court’s jury instructions
P’s attorney told jury to “think about how many other Jesse Williams in the
last 40 years in the State of Oregon there have been….”
Jury instruction: “Punitive damages are awarded against a D to punish
misconduct and to deter misconduct ” and “ are not intended to
compensate P or anyone else for damages caused by the D’s conduct.”
State court rejected D’s request for a different instruction telling jury they
could consider harm suffered by others in determining relationship of D’s
conduct to P’s harm BUT that it could not punish D for the impact of its
alleged misconduct on other persons who may bring lawsuits of their own
Philip Morris Co v. Williams – the Supreme Court
SCT reversed the award of punitive damages because:
Jury instruction used by lower court does not effectively guide jury
discretion and allows juries to punish a D for injury that it inflicts upon
non-parties who are strangers to the litigation.
Is this a procedural due process (lack of adequate
safeguards) issue or a substantive due process (direct
review of excessiveness) issue?
After Williams, can juries still take into account the harm
to other people D has caused in determining the
reprehensibility of D’s conduct (Gore guidepost #1)?
What must lower courts do to ensure that juries seek “simply
to determine reprehensibility ” but not “punish for harm
Punitive Damages For Breach of Contract
General Rule: No punitive damages for breach of contract unless there is an
independent tort in the contract setting that can be the basis of the punitive
Tradition – forms of action are separate
Hostility to punitive damages – don’t want to extend beyond torts
Deterrent effect on entering contracts could be too significant
Independent Torts (Possibly) Supporting Punitive Damages
In Breach of Contract Situations
Examples – Formosa, Haslip, State Farm, BMW v. Gore
Haslip (alternative theory)
Bad-Faith Breach (insurance only?)
State Farm – excellent example
Tortious Interference with contract/business relations
Courts usually require that D’s breach of contract w/ P have the purpose of
interfering w/ P’s other relationships – NOT enough that D knew could hurt other
Gross Negligence (?)
Usually not a basis for punitives in breach of contract UNLESS there is some physical
harm to person or property other than that under the contract
Ordinary negligence is never the basis for punitives (contract or not)
Formosa Plastics v. Presidio Engineers
Formosa invited Presidio to bid on a construction project for concrete foundations. Sent
a bid package w/ representations about Formosa’s & Presidio’s obligations re (1)
scheduling, ordering & delivery of material, (2) work schedule, (3) beginning/end dates.
Presidio relied on these representations to enter a bid, which was accepted.
Job was substantially delayed, ended up costing far more than estimated.
Presidio discovered that Formosa intentionally lied about the bid package & ran a scheme to
induce contractors to make low bids & then stay in the game even after the Formosa
breached its obligations
Jury found fraud and awarded punitive damages. Texas SCT upheld despite Formosa’s
argument that this was merely breach of K. Fraud was an independent tort.
Doesn’t most of the damage come from breach of contract? What is it about
fraudulent inducement that makes us so willing to award punitives?
What if it wasn’t clear that the scheme was hatched before the contract was
entered? What if D intentionally began scheduling deliveries or multiple
workmen after the project began? Is that fraud or just intentional breach? Is
timing everything on these sorts of claims for punitive damages?